The price of oil may be falling in North America, but consumers hoping gasoline prices will follow suit are out of luck.
Canada’s National Energy Board expects the average cost of regular gasoline to be between $1.20 and $1.35 per litre this summer, mirroring last summer’s range. The NEB’s prediction assumes the benchmark price for oil in North America will average $100 (U.S.) per barrel. The Canadian average for regular gasoline hit $1.30 (Canadian) per litre May 15, according to data collected by MJ Ervin & Associates, while benchmark oil in North America is trading around $92.50 (U.S.) a barrel.
Frustrated consumers, however, must look beyond the price of West Texas Intermediate crude, the continent’s benchmark price, when considering the price of gasoline. The international price of oil, known as Brent crude, is worth about $10 to $15 more per barrel than WTI and greatly influences the price at the pumps in Canada and the United States. The two benchmarks no longer trade in lockstep, in part because North America’s pipeline system cannot get enough crude to certain processing facilities.
North America’s largest refining complexes sit on the Gulf Coast and, like other major refining centres in the east, buy the oil they process at global prices. While oil produced at home is notably cheaper, the price of WTI has been reduced to a footnote when it comes to gasoline prices.
“Less-expensive Canadian oil and U.S. oil can’t get to the refineries because of the pipeline restrictions,” Earl Sweet, an economist at Bank of Montreal, said. “Oil accounts for roughly half of the price of [gasoline] and the rest being taxes and refinery margins, and marketing costs.”
High Brent prices do more than hurt consumers. Imperial Oil Ltd. put its refinery in Dartmouth up for sale Thursday, making it another East Coast casualty of high international oil prices.
A barrel of Brent oil cost $111.40 (U.S.) on May 15, when gasoline averaged $1.30 (Canadian) per litre. By way of comparison, Brent cost an average of $113.40 (U.S.) in the three months ending September, 2011 (according to Suncor Energy Inc.’s financial reports) while NEB oil market analyst Christian Rankin said the average price at the pumps reached $1.28 (Canadian) per litre last summer.
Michael Ervin, principal of MJ Ervin, said that only a sizable drop in the price of oil will translate into notable relief at gas stations.
“A dollar or two or three or four-dollar per barrel change in WTI – how much is that going to affect the pump price? Maybe by a few cents per litre,” he said.
Gasoline prices tend to hold steady in the summer, Mr. Ervin said, noting he thinks a “modest” decline could be on its way. Gasoline inventories are healthy, and demand in the United States is still depressed following the recent recession.
Further, gasoline prices tend to rally in the spring, before families pack up their vehicles for sight-seeing adventures. The jump happens as wholesale buyers prepare for the summer demand, he said.
The energy industry is pushing hard to expand North America’s pipeline network, which would shrink the price gap between Brent and WTI oil prices. Enbridge Inc., for example, plans to spend $2.6-billion (Canadian) on its system in order to move crude from the Alberta oil sands and the U.S. Midwest’s Bakken to refineries in the east. TransCanada Corp., still pushing to build its proposed Keystone XL line to the Gulf Coast, is considering shipping oil, rather than natural gas, in part of its network in Eastern Canada. Other plans are in the works to ease the bottleneck in hubs such as Cushing, Okla.